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The adjustment of financial ratios in the presence of soft budget constraints: evidence from Bulgaria

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  • Jozef Konings
  • Hylke Vandenbussche

Abstract

This paper is the first to study the behaviour of financial ratios in an emerging economy of Central Europe. Using the entire population of company accounts in Bulgaria we find that for the financial ratios we considered, adjustment towards a target takes place but the speed of adjustment is lower than that for Western companies reported in earlier studies. Also, we find the adjustment of financial ratios in Bulgaria to be far slower in firms characterized by soft budget constraints, a widespread phenomenon in Central Europe. However, the speed of adjustment of most financial ratios shows up as significantly higher after the Bulgarian financial crisis in 1997. Our results indicate that the partial adjustment model may not be the most appropriate model for an emerging economy like Bulgaria. Further research needs to clarify how expectations are formed and financial ratios move over time in transition countries such as Bulgaria.

Suggested Citation

  • Jozef Konings & Hylke Vandenbussche, 2004. "The adjustment of financial ratios in the presence of soft budget constraints: evidence from Bulgaria," European Accounting Review, Taylor & Francis Journals, vol. 13(1), pages 131-159.
  • Handle: RePEc:taf:euract:v:13:y:2004:i:1:p:131-159
    DOI: 10.1080/0963818032000102980
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    Cited by:

    1. Poncet, Sandra & Steingress, Walter & Vandenbussche, Hylke, 2010. "Financial constraints in China: Firm-level evidence," China Economic Review, Elsevier, vol. 21(3), pages 411-422, September.
    2. Nhu Tuyên Lê & Marc De Bourmont & Olivier Vidal, 2011. "La perception des changements comptables par les acteurs : le cas du Viêt-Nam," Grenoble Ecole de Management (Post-Print) hal-00650545, HAL.
    3. Milos Markovic & Michael A. Stemmer, 2017. "Firm Growth Dynamics and Financial Constraints: Evidence from Serbian Firms," Documents de travail du Centre d'Economie de la Sorbonne 17012, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    4. Grantley Taylor & Greg Tower, 2011. "Determinants of Financial Ratio Disclosure Patterns of Australian Listed Extractive Companies," Australian Accounting Review, CPA Australia, vol. 21(3), pages 302-314, September.

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